Performance analysis of Turkey’s participation and conventional indices using TOPSIS method

Abstract

PurposeThe purpose of this paper is to rank the performances of two participation indices developed in Turkey according to Islamic principles and six conventional indices based on their risks and returns for the years 2015, 2016 and 2017.Design/methodology/approachThe performance of the two Islamic and six conventional indices were ranked using the technique for order preference by similarity to ideal solution (TOPSIS), i.e. a multiple-criteria decision-making method, and the weights of the decision criteria were determined using the objective weighting method called entropy.FindingsThe results do not show any statistically significant difference in returns between the participation indices and their conventional counterparts. However, all analyses performed using various risk metrics revealed the lowest risks for the Participation indices. Furthermore, in the TOPSIS ranking for all of the years, the Participation indices ranked above BIST 100, which was selected as the benchmark.Social implicationsParticipation indices provide investors adhering to Islamic faith with opportunities through which they can comfortably invest with limited loss of financial performance for the study period. They also serve as a good alternative for risk-averse investors.Originality/valueThe paper is distinguished by the criteria and methodology it uses for index ranking. Furthermore, it is believed to be useful for the limited literature on the Participation Index in Turkey as well as for national and international investors and institutions interested in Islamic indices in particular.